INSTITUTIONS BUY CALL OPTIONS ON THE BANKS BEFORE EARNINGS
Some big money is moving into the XLF banking ETF before the banks begin reporting their earnings this week. 130,000 calls were purchased today with expectations of a greater than 7% rally in the shares. From the IB options desk:
XLF – Financial Select Sector SPDR – Shares of the financials exchange-traded fund are 0.75% higher today at $15.36. Massive call transactions in the November contract this afternoon suggest some investors expect further bullish movement in the price of the fund by expiration. Traders taking a near-term optimistic stance on financial stocks purchased approximately 130,000 calls at the November 16 strike for an average premium of 48 cents apiece. Investors holding the contracts may accumulate profits if shares of the XLF rally at least 7% to surpass the breakeven price of $16.48 by expiration. Finally, bullish sentiment spread to the higher November 17 strike where traders paid an average of 19 cents to take ownership of 12,600 call options.
Source: IB
HOW CAN THEY BE SURE THIS IS A BULLISH SPECULATION.WHAT IF THESE INSTITUTIONS THAT BOUGHT THE CALLS ARE ACTUALLY SHORT STOCK AND BOUGHT THE CALLS FOR NEAR TERM EARNINGS PROTECTION.
ShortBus Reply:
October 13th, 2009 at 12:33 PM
Exactly what I was going to say. These types of statistics are always quoted in isolation and never really give the whole picture.
If I was short the stock I would be buying massive amounts of calls also.
I guess we “have to” believe the bullish side. After all they were calls not puts?!?! Hmmm… eventually it will turn south, and it will be big.
Guys, IB is the MM….
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